Dollar Tree's stock price drops after the discount retailer lowers its full-year earnings outlook.

• Dollar Tree adjusted its full-year forecast due to mounting pressures affecting both middle-class and affluent customers.
• Specifically, dollar stores have been affected by the prolonged period of higher food and everyday expenses, causing their core customers to make trade-offs.
• In the quarter, the company experienced a 0.7% increase in same-store sales at Dollar Tree.

On Wednesday, the discounter's shares dropped about 10% in premarket trading after it lowered its full-year outlook, citing growing pressures on middle-income and higher-income customers.

The retailer has updated its full-year consolidated net sales outlook to range between $30.6 billion and $30.9 billion, with adjusted earnings per share expected to range from $5.20 to $5.60. This is a change from its previous guidance of $31 billion to $32 billion in net sales and $6.50 to $7 for adjusted earnings per share.

Jeff Davis, the Chief Financial Officer of the company, stated in a news release that the company had revised its forecast to reflect a more cautious outlook and the expenses associated with converting the 99 Cents Only stores that it had recently acquired.

General liability claims were the primary reason for lower earnings per share in the quarter, according to Davis. The company stated that it has been incurring higher costs to reimburse, settle, and litigate claims related to customer accidents and other incidents at stores.

Customers across incomes have become more cautious with their purchases, resulting in softer sales for Dollar Tree.

Dollar General CEO Todd Vasos attributed weak sales to a core customer feeling financially constrained, while Dollar Tree's report was released a week after its major rival slashed its full-year sales and profit outlook, causing its shares to plummet.

Value-conscious shoppers, including those with lower incomes, have increasingly turned to dollar stores for their shopping needs. However, these stores have been feeling the pressure as their core customer base has been making tradeoffs due to the prolonged period of pricier food and everyday costs. In response, Walmart has won more business from these shoppers, while newer online players like Temu have also attracted customers with cheap merchandise.

Dollar Tree comprises two store chains: its namesake, which offers a broad range of affordable items such as party supplies, and Family Dollar, which focuses more on food.

In the quarter, the company's same-store sales rose by 0.7%. Meanwhile, Dollar Tree's same-store sales increased by 1.3%, while Family Dollar's same-store sales fell by 0.1%. The industry metric adjusts for the impact of store openings and closures.

Dollar Tree has faced both inflation-stretched shoppers and company-specific challenges, including the closure of about 1,000 Family Dollar stores in March due to market conditions and poor store performance, as well as the consideration of selling the Family Dollar brand in June.

Since Dollar Tree acquired Family Dollar for about $9 billion in 2015, the company has faced challenges in enhancing the grocery-centric chain and staying competitive with Dollar General.

Dollar Tree's shares have fallen nearly 43% since the beginning of the year, with the stock hitting a 52-week low on Tuesday and closing at $81.65.